Philadelphia Semiconductor Index Nears Technical Bull-Market Threshold
U.S. chip stocks are once again nearing the edge of a technical bull market, buoyed by the optimism generated by recent corporate earnings reports. Shares across the sector—from computing leaders Nvidia and AMD to memory-chip manufacturers Micron Technology and SK hynix, as well as downstream cloud-service and optical-communications companies—have broadly risen over the past week or more. The Philadelphia Semiconductor Index is accelerating toward a return to bull-market territory. The index closed Wednesday at 12,399.38. According to Dow Jones market data calculations, it needs to reach 12,536.99 to officially begin a new technical bull market. In common market usage, a technical bull market is generally defined as a cumulative rebound of at least 20% from a recent low. Wednesday's U.S. semiconductor-stock rally was broad. SanDisk and Micron Technology rose about 6% and 5%, respectively. SK hynix, another major beneficiary of the surge in memory-chip demand, gained 9% in its U.S.-listed American depositary receipts. AI-chip leaders Nvidia and AMD also advanced, rising about 3% and 2%, respectively. The rally was directly supported by strong earnings reports released Tuesday by CoreWeave, Super Micro Computer and Lumentum Holdings. The results indicated that capital spending in the AI sector remains strong. Dan Kemp, founder of investment advisory firm Portfolio Thinking, said the companies operate in the middle and downstream portions of the AI supply chain, primarily assembling and deploying chips and providing connectivity applications. Their results, he said, gave investors a clearer view of end-market chip demand and provided strong support for the market's enthusiasm toward the sector. Kemp said investors should nevertheless remain alert to the scale of the financial commitments underpinning that demand. He pointed to cloud-services provider CoreWeave, which raised its capital-expenditure plan for this year from $31 billion to $35 billion to a range of $35 billion to $39 billion. Its revenue-growth guidance was considerably more conservative, he said. CoreWeave also reported quarterly net interest expense of $640 million, while adjusted operating income was just $128 million. “We have not yet seen enough consumer and enterprise spending to justify commitments of this scale,” Kemp said. CoreWeave and Super Micro Computer also highlighted their rapidly growing backlogs in their earnings reports. Super Micro reiterated that additional new orders for the quarter ended in June had surpassed $60 billion. Kemp said he remained skeptical because some orders could ultimately be canceled or delayed. Investors are entitled to view a large backlog as a positive signal, he said, but when valuing assets they should treat it as a range of probabilities rather than as revenue already secured. He said Wednesday's chip-stock gains may also have been linked to the relatively moderate U.S. July consumer-price index report released earlier in the day, which was broadly in line with Wall Street expectations. Brian Mulberry, chief market strategist at Zacks Investment Management, offered a different interpretation. The earnings reports, he said, “further confirm that AI-related investment is becoming broader, rather than merely increasing in scale.” In recent comments, Mulberry said CoreWeave confirmed that demand for GPUs remains strong, while Lumentum showed how that demand is driving the infrastructure needed to power and operate those chips. Mulberry cautioned that not every chip company will benefit to the same degree and said individual companies' “fundamentals will ultimately matter more.” Investors are now pursuing stocks with the potential for accelerating growth, he said, “rather than simply price spikes driven by momentum.” In his view, Nvidia, Broadcom and optical-networking supplier Coherent have the strongest fundamentals. Kemp expressed a similar view, saying the central question for long-term investors is whether actual demand is growing fast enough to keep pace with the lofty expectations currently embedded in stock prices. “On this crucial question, the evidence we can see so far is far from reassuring,” he said.
The Philadelphia Semiconductor Index is accelerating toward a return to bull-market territory. The index closed Wednesday at 12,399.38. According to Dow Jones market data calculations, it needs to reach 12,536.99 to officially begin a new technical bull market.
In common market usage, a technical bull market is generally defined as a cumulative rebound of at least 20% from a recent low.
Wednesday's U.S. semiconductor-stock rally was broad. SanDisk and Micron Technology rose about 6% and 5%, respectively. SK hynix, another major beneficiary of the surge in memory-chip demand, gained 9% in its U.S.-listed American depositary receipts. AI-chip leaders Nvidia and AMD also advanced, rising about 3% and 2%, respectively.
The rally was directly supported by strong earnings reports released Tuesday by CoreWeave, Super Micro Computer and Lumentum Holdings. The results indicated that capital spending in the AI sector remains strong.
Dan Kemp, founder of investment advisory firm Portfolio Thinking, said the companies operate in the middle and downstream portions of the AI supply chain, primarily assembling and deploying chips and providing connectivity applications. Their results, he said, gave investors a clearer view of end-market chip demand and provided strong support for the market's enthusiasm toward the sector.
Kemp said investors should nevertheless remain alert to the scale of the financial commitments underpinning that demand.
He pointed to cloud-services provider CoreWeave, which raised its capital-expenditure plan for this year from $31 billion to $35 billion to a range of $35 billion to $39 billion. Its revenue-growth guidance was considerably more conservative, he said. CoreWeave also reported quarterly net interest expense of $640 million, while adjusted operating income was just $128 million.
“We have not yet seen enough consumer and enterprise spending to justify commitments of this scale,” Kemp said.
CoreWeave and Super Micro Computer also highlighted their rapidly growing backlogs in their earnings reports. Super Micro reiterated that additional new orders for the quarter ended in June had surpassed $60 billion.
Kemp said he remained skeptical because some orders could ultimately be canceled or delayed. Investors are entitled to view a large backlog as a positive signal, he said, but when valuing assets they should treat it as a range of probabilities rather than as revenue already secured.
He said Wednesday's chip-stock gains may also have been linked to the relatively moderate U.S. July consumer-price index report released earlier in the day, which was broadly in line with Wall Street expectations.
Brian Mulberry, chief market strategist at Zacks Investment Management, offered a different interpretation. The earnings reports, he said, “further confirm that AI-related investment is becoming broader, rather than merely increasing in scale.”
In recent comments, Mulberry said CoreWeave confirmed that demand for GPUs remains strong, while Lumentum showed how that demand is driving the infrastructure needed to power and operate those chips.
Mulberry cautioned that not every chip company will benefit to the same degree and said individual companies' “fundamentals will ultimately matter more.” Investors are now pursuing stocks with the potential for accelerating growth, he said, “rather than simply price spikes driven by momentum.”
In his view, Nvidia, Broadcom and optical-networking supplier Coherent have the strongest fundamentals.
Kemp expressed a similar view, saying the central question for long-term investors is whether actual demand is growing fast enough to keep pace with the lofty expectations currently embedded in stock prices. “On this crucial question, the evidence we can see so far is far from reassuring,” he said.